One of the most common strategies is to attempt to claim a loan to a family member or close friend. The “creditor” is listed on the disclosures as having loaned a substantial amount of money. In these cases, the former spouse often begins making “payments” to this creditor in the months before and during the divorce. Of course, once the divorce is completed, the friend or family member simply returns all the payments.
The same strategy can be applied to genuine creditors. The spouse attempting to hide money often pays a large creditor a substantial sum which is over and above the actual amount owed. It takes a state or federal agency like the IRS or a large credit card company a while to recognize the overpayment. It takes even longer for them to issue a refund or to show the balance as a credit to the account. The former spouse simply goes back to ask for a refund after the divorce is completed.
The ownership of a business or professional practice provides several opportunities to hide income and assets. Business owners may reduce their salary or reduce the income from their business months before asking for a divorce. This is often not only an attempt to hide money, but can serve to reduce the calculated amounts of child or spousal support. Another of the common tactics used by a former spouse to hide money in a divorce is to create fake employees on the company payroll and divert cash to unreported accounts while claiming the payments as income, bonuses or commissions earned by the fake employee.
The good news is most of these strategies can be uncovered during the process of discovery or by a forensic accountant. It is important to make sure you have copies of as many of your recent business and personal tax returns, as well as the past 3 years of statements from every financial or credit account as well as retirement accounts and/or pensions.
Spouses owe each other a powerful legal obligation known as a “fiduciary duty” until the date the divorce is final. This requires each spouse to continue to take actions which are in their spouse’s best interests. This includes making full, transparent and accurate financial disclosures at the outset of the divorce. While there are many tactics used by a former spouse to hide money in a divorce the underlying facts can usually be brought to light resulting in financial sanctions against the perpetrator of these schemes.